United States
Environmental Protection
Agency
Office of \ , 3ter
Program Operations (WH-546)
Washington DC 20460
EPA 430/9^84-006
June 1984
User Charge Guidance Manual
for Publicly-Owned
Treatment Works
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User Charge
Guidance Manual
For Publicly-Owned
Treatment Works
I1 S. F: vironmental Protection Agency
^p>;. v>. Library
2..-0 Sci!-h Dearborn Streat
ChiccfcO, Illinois G0604
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DISCLAIMER
This document manual has been prepared by the Office of Water Program Operations, U.S. Environmental
Protection Agency, and approved for publication. Approval does not signify that the contents necessary
reflect the views and policies of the U.S. Environmental Protection Agency, nor does mention of trade
names or commercial products constitute endorsement or recommendation for use.
This document is based upon information contained in Volume 6 of Management Assistance Document
Series entitled User Charge and Related Revenue System Requirements for Publicly-Owned Treatment
Works prepared by Arthur Young & Company for the United States Environmental Protection Agency
and the New Jersey Department of Environmental Protection in May 1981.
This document is designed to
supplement the Interim Final
(May 12, 1982) and Final
(February 17, 1984) Construc-
tion Grants Regulations
U.S. Environmental Protection Agency
Office of Water Program Operations (WH-546)
Washington, D.C. 20460
U.S. Environmental Protection Agency
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CONTENTS
Introduction i
Organize The Project Team 1
Organizational Structure And Support Functions 2
Rate Setting Methodology 6
Developing A User Charge Ordinance 8
Overall Revenue Strategy For Total Operating Cost Recovery 9
User Charge Regulatory Requirements 11
Key User Charge Regulatory Requirements As A Condition Of
Receiving A Construction Grant 13
Key User Charge Regulatory Requirements After Construction
Grant Is Awarded 14
Appendix I 15
Appendix II 16
Formula Definitions 18
Appendix III 20
Appendix III-A 23
Definitions 24
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INTRODUCTION
The role of proper financial management is as
importantto successful operation of a publicly owned
wastewater treatment utility as proper facility
planning, engineering design, equipment selection or
operator training. A user charge system, which is an
important aspect of financial management, should be
designed to assist the wastewater utility in achieving
financial self-sufficiency, place the costs of pollution
abatement directly on the sources of pollution
(proportionately), and ensure the conservation of
potable water.
A wastewater utility must develop a revenue
generating system that recovers its total cost of
operations. An adequate and proportional user charge
system is a major factor in the development of a
self-supporting utility. User charges represent,
however, only one element in the total revenue
strategy. The overall revenue strategy should be
capable of recovering all of the utility's operation
costs. Recouping all costs is sound financial
management and essential if a wastewater utility is
to become financially self-sufficient.
Congress and the Environmental Protection Agency
(EPA) have recognized the significance of proper
financial management and its relationship to
acceptable wastewater treatment system perfor-
mance. As a result, wastewater utility management
must develop an EPA approved user charge system,
before Federal grant assistance will be awarded for a
wastewater treatment project.
The intent of this manual is to assist wastewater
treatment works managers—particularly financial
planners, rate designers, and engineers—of small and
medium sized communities, regardless of Federal
grant assistance, in understanding the various
procedures needed to develop a user charge system
and other cost recovery concepts.
Information presented in this manual provides typical
work steps and concepts for developing and
implementing a user charge system as well as
developing a strategy for recovering other operating
costs. This material addresses: the types of personnel
(project team) needed to develop and operate a user
charge system; organizational structure and support
functions; rate setting methodology; user charge
ordinances; overall revenue recovery and EPA
regulations concerning user charge systems.
The reader should be aware that EPA regulations have
certain constraints and/or prohibitions that either
modify or limit the range of activities available to
wastewater treatment works managers in the
development of a user charge system. These
regulations must be followed in order to receive a
construction grant.
This document offers guidelines for the development
of user charge systems. Since each system must be
tailored to reflect the unique conditions of the
treatment system it will support, the make-up of the
project team, customer data, rate structure,
ordinances, etc., will most likely vary from the
examples in this manual. Please note, this document
is designed to supplement the Interim Final (May 12,
1982) and Final (February 17, 1984) Construction
Grants Regulations.
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ORGANIZE THE PROJECT TEAM
Developing and implementing a successful user charge
system requires the expertise of professionals in sev-
eral different areas. In most instances assistance from
financial, legal, engineering, planning, and administra-
tive personnel will be necessary.
A wastewatertreatment utility needsfinancial person-
nel who have a good working knowledge of thetheory
and practice of public enterprise fund accounting. Fi-
nancial personnel will be required to: estimate opera-
tion, maintenance and replacement costs (0,M&R);
evaluate the economic impact of user charges upon
various users or user categories, develop a proportion-
ate user charge system and preliminary rate estimates;
forecast the degree of change required to modify exist-
ing budgeting, billing and accounting functions to ac-
commodate a usercharge system; determine annually
if user charges should be revised and, with regard to the
capital financing of the facility, recommend the type of
bonding mechanism which best suits the system's fi-
nancial capability.
In addition to financial assistance, a wastewater treat-
ment utility needs legal personnel to identify interjuris-
dictional relationships affecting a user charge system
and prepare the appropriate intermunicipal service ag-
reements. Legal services are also required to assure that
the proper inter-relationship exists between the user
charge ordinance, sewer use ordinance, and the pre-
treatment program (if required).
Engineering expertise is needed by a wastewater utility
to: define unit processes and process loads; and estab-
lish a method of reconciling total plant loadings with the
results of user samplings.
The projectteam should also include planning person-
nel. Their responsibility will be to forecast new develop-
ment trends, demographic trends and areas targeted for
growth. They must be able to identify new industries
which could have an impact on waste loadings.
In order to successfully implement a user charge system
sufficient administrative support staff should be availa-
ble and have the capability to: compile and maintain
customer records, perform customer service functions
and handle user inquiries; and provide other adminis-
trative services associated with developing and imple-
menting a user charge system.
If sufficient financial, legal, engineering, planning or ad-
ministrative personnel are not employed by a wastewa-
ter treatment enterprise, management may want to con-
sider contracting with the appropriate consultants.
Before soliciting consulting services, management
should determine: what needs cannot be met by exist-
ing staff; specific accomplishments to be achieved; the
type of consultants to be hired; and what level of exper-
tise is required.
Coordinating the activity of the project team is the re-
sponsibility of the chief administrative officer (public
works director, superintendent, etc.) He or she must be
involved in the development of a user charge system
to provide the overall direction and organization for
achieving operating goals, objectives, and policies.
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ORGANIZATIONAL STRUCTURE
AND SUPPORT FUNCTIONS
The overall organizational structure of a wastewater
treatment utility and the support functions it provides
affects not only the type and way services are
provided, but also the development of the user charge
system. In orderto develop a self-supporting utility in
concert with a proportionate user charge system,
management must carefully analyze its organizational
structure and support functions.
Organizational Structure
The wastewater utility's structure will reflect its
political, financial and operational environment.
There are a broad range of possible structures,
however, most are variations or combinations of the
following:
As a municipal department, the utility usually exists
as a department within the local government. The
financial structure is generally integrated into the
general municipal account; and the budget is usually
part of the general municipal budget. Usually, the
municipal department structure provides elected
officials with complete control of the utility. The key
financial issues fora municipal departmentare raising
capital and operating revenue. If the municipal budget
is financially strong, the department can obtain less
expensive capital, i.e., general obligation or revenue
bonds. As a department within a local government,
the utility has the capability of being able to draw on
the general fund when unexpected shortfalls occur.
This type of borrowing capability, however, does not
encourage self-sufficiency.
Additionally, when a utility is operated as a municipal
department, its support functions (indirect costs), e.g.,
accounting, budgeting, data processing, purchasing,
etc., are generally performed by other municipal
departments. For small utilities, having these
functions performed by other departments is
beneficial, since the utility could not afford to maintain
the same level of service by itself and it avoids
unnecessary duplication of activities. For larger
utilities, however, this type of support is frequently
inadequate to serve the utility's needs. In any case,
not charging indirect costs to the utility gives a false
impression that it is self-supporting when in fact the
general government and the entire tax base are
supporting the operation.
As an enterprise system, the wastewater utility is
operated as a business by the general purpose local
government which ownsand manages the system. A
utility can be operated as an enterprise if it is entirely
self-supporting. To be self supporting, a utility must
establish a system of fees and charges that generates
sufficient revenues to pay for all operating costs,
including the replacement of equipment, and debt
retirement. The financial aspects of the system are
separate from that of the general governmental
operations, and the enterprise fund is maintained
independently to accountforthe assets, liabilities, and
fund equity of the system, as well as its revenue flow,
operations, and non-operating expenses. Capital
financing may be obtained through either general
obligation or revenue bonds. Repayment will usually
come from user fee revenues. General purpose
governments, which operate a utility as an enterprise,
usually reserve general obligation debt capacity for
non-revenue generating facilities so that general
revenues or taxes can be used to repay such debt.
A wastewater enterprise utility may need to
"purchase" support services from the general
government unless it is large enough to support
full-time administrative and financial personnel.
However, these indirect costs are reflected in the
accounting for the enterprise fund and appropriate
reimbursements, are made to the general fund for
services rendered. If an enteprisefund experiences a
deficit, it may borrow available revenues by means of
inter-fund transfers, but this represents a liability and
must be repaid.
While large municipal system owners usually
maintain utilities as enterprises, small cities and
towns can also successfully use this approach if the
self-supporting concept is applied. The advantage of
thisapproach isthatthefinancial integrity of the utility
system can be upheld without depending on general
government support. In either case, the local
government retains management control and
rate-setting powers.
As a municipal authority, the municipality retains
ownership of the utility while most management
control is vested in the authority. The authority (board
or commission) is appointed by the local elected
officials. Terms of office are generally overlapping.
Financial and accounting systems are completely
separate from the municipality's. The authority is
generally vested with the power to establish its own
budgets and set utility rates without municipal
approval. The authority may also be empowered to
issue bonds, although voter or elected official
approval may be required. The major advantage of
this type of structure is its operational autonomy. This
autonomy provides insulation from political pressure
concerning budgets and rates.
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As an independent authority, or special service
district, the utility is usually created by a special act
of the State legislature which defines how the
authority is to be structured and operated. A board or
commission arrangement is the typical governing
structure which can be amended only by State
legislation. Through creation of such an authority, a
municipality can shift the burden of a substantial
service to an essentially separate jurisdiction.
Ownership of the utility rests with the authority.
The degree of control a municipality can maintain over
an independent authority depends on the enabling
legislation. Control over appointments to the
governing board, its composition, terms of office, and
the use of surplus revenues are all mechanisms which
a municipality can use to hold the independent
authority accountable to municipal interests. In
practice, however, a satisfactory balance between
independence and accountability is difficult to
achieve.
Asa regional treatment authority,tbe utility may be
created by either a contract between several political
subdivisions (subscribers) or by a special act of the
State legislature. The governing board or commission
is either appointed by the subscribers or elected by
popular vote. The major advantage of a regional
authority is that it can achieve a greater economy of
scale when compared to the individual wastewater
operations of subscribers.
If the regional agency is authorized to bill the
individual users within the system, only one revenue
program and rate ordinance is required. If the regional
agency bills the subscribing agencies, which in turn
bills the individual users, separate revenue programs
are required for the regional and each subscribing
agency. Each subscribing agency must also adopt its
own rate ordinance based on the approved revenue
program. (The enabling legislation or contract
specifies the degree of financial and operational
autonomy enjoyed by the authority.)
In conclusion, there is no "best" organizational
structure. While structure is important, it is only one
of several factors that determines successful utility
operation. There are financially and managerially
strong systems under each organizational alternative.
Experience, however, suggests that the more
financially capable a utility is in meeting its short-term
(operating) and long-term (capital) requirements, the
less the need, from a financial perspective, for revising
the organizational structure.
Support Functions
Regardless of which institutional structure is estab-
lished certain support functions must be provided.
Engineering and Operating Data Collections
A wastewater treatment utility consists of a number
of working systems (unit processes) that must be
operated and maintained. These unit processes
include the collection system, preliminary treatment
(grit removal and screening) primary treatment,
secondary treatment, solids handling, and disinfec-
tion. Each unit process is designed to deal with one
or more of the main characteristics of normal
domestic sanitary sewage, i.e. volume (flow) and
loadings (biochemical oxygen demand (BOD) and
suspended solids (SS). For example, the collection
system is designed to accommodate a specific volume
of wastewater; screening and grit removal are
designed to reduce suspended solids; and primary
treatment is designed to reduce both BOD and SS.
Identifying these unit processes and their purpose in
terms of flow, BOD, and SS requires accurate
operating data and engineering judgment. This
procedure should be performed early in the user
charge system development process and when plant
improvements or additions are made.
The allocation of operating data to the unit processes
is also essential to the establishment of an equitable
user charge system. Labor (hours), chemicals,
supplies, equipment replacement, the operating time
of motors, and power requirements must be allocated
among the various unit processes. The information to
develop these allocations can usually be obtained
from time and material distribution sheets for the
utility.
Once unit processes have been identified and
operating data allocated, OM&R costs can be
distributed.
The next step involves the establishment of sampling
programs at certain key locations in the sewerage
system and at discharge points of major users. This
allows utility management to adequately identify
users based on their wastewater characteristics (flow
and loadings). The flow and loadings information
(BOD, SS or other appropriate constituents) obtained
fromthesampling programwill be used incalculating
proportional user costs.
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Budgeting Procedures
Management should first define what constitutes a
capital expense and what items constitute operation
maintenance and replacement (O&MR) expenses. '
(Replacement costs include such items as: pumps,
motors, motor vehicles, blowers, etc.)
Capital outlays are normally included in the capital
program: a budget which involves development of
short- and long-term plans to refurbish and expand
the utility's physical facilities. This includes planned
expenditures for improvements and betterments to
buildings, land, sewers and major pieces of
equipment which have significant value and extend
the useful life of the treatment works.
The current expense (operating) budget includes
those items considered to be routine operation,
maintenance, and replacement expenses. The
operating budget generally involves development of
a one-year action plan for the day-to-day operations
of the treatment works. This budget can include
planned expenditures for salaries, supplies, chemicals,
normal maintenance expenses, and outlay for new or
replacement equipment. (See Appendix I for
examples of typical operating budget items.)
The budget should identify 0,M&R costs in total and
by unit processes (i.e., collection system, primary
treatment, secondary treatment, etc.). To accomplish
this requires that total OM&R costs be allocated in
accordance with the operating and engineering data
discussed above. (See Appendix II).
Once unit process costs have been established, the
next step is to divide these costs by the total annual
volume and/or loadings, as appropriate, to produce
unit costs. Unit costs are then multiplied by the flow
and loadings of the user classesto establish an annual
rate in proportion to the demand on the wastewater
utility.
Accounting Systems
Wastewater utilities should establish an accounting
system that reflects the budget system and conforms
togenerally accepted accounting principles. Installing
such a system requires establishing the books of
account, formulating a plan for gathering information
determining the number and type of accounts,
records, and documents, and establishing billing and
collection procedures.
The revenue structure of the accounting system
should list revenues by user classes, compare actual
receipts to estimates and include amounts billed but
not yet received.
The cost structure of an accounting system should
allow management to separate capital expenses from
O,M&R expenses and include a formal encumbrance
system so management can determine assets and
outstanding liabilities in addition to the account
balance. The cost structure should also reflect the
operating budget of the wastewater utility and its unit
processes. The accounting system should permit
reports to be developed which compare approved
budget figures (appropriations) to actual expenses.
In many instances enterprise fund accounting is used
to account for wastewater operations where there is
a significant potential for financing the utility's costs
through service charges or where the utility desires
to know its profit or loss. An enterprise fund is
designed to gather total costs and to indicate the
extent to which service charges are sufficient to
recover total costs.
The typical objectives of an accounting system
include: recording revenues receipts and billings by
individual user and user class; reporting O,M&R costs
in total, and unit process; recording and reporting on
billing and collection activities; and determining
changes in assets, liabilities, and fund balances
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Customer Recordkeeping System
This may involve the collection of information such
as: name; address; lot/block number; connections
data; tax assessed values (for ad valorem only); user
classification; and water meter records (where water
consumption is used as basis for sewerage billing).
Customer records should also be used to store usage
data for each customer. These records would be
updated periodically based upon reports furnished by
operations personnel.
Providing timely and adequate responses to inquiries
and appeals from users is also an important
recordkeeping function. This is normally handled by
a utility's customer service department. Customer
service activities include: documenting; investigating;
and preparing replies for all inquiries and appeals.
Management should make certain that appeal
procedures are adequately addressed in the user
charge ordinance.
Manual Versus Automated Information System
As wastewater utilities become increasingly more
complex to operate and manage, information systems
are becoming more important to successful
operations. The decision to have a manual or
automated budget and accounting information
system is influenced by several factors: the size and
nature of the utility; the costs of operating an
automated or manual user charge system, the volume
and transactions which must be processed to support
the system; and the need and frequency of general
management reports.
Public Involvement
Throughoutthe process of establishing a usercharge
system, management should develop a program to
keep the publicwell-informed. During the past several
years, proposed sewer rate increases have met with
increasing public resistance. Citizens who are
convinced about the importance of an adequately
financed wastewater system can be a positive force
in mitigating public reaction to rate increases.
However, if rates are found to be excessive, then
citizens can provide suggestions for alternative action.
Overall, citizen involvement will enhance public
awareness and acceptance of the user charge system.
A successful public involvement program will
normally contain: public hearings; workshops;
advisory groups; speaking engagements; and media
coverage.
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RATE SETTING METHODOLOGY
Any community served by a wastewater treatment
utility is in a constant state of change. As new develop-
ments for residential and industrial users are planned
and constructed, wastewater volume and strength
characteristics will fluctuate. Selecting a rate-setting
model normally involves conducting a review to deter-
mine the number and types of users contributing to
the utility, their discharge characteristics, and the
treatment plant's processing capability.
When developing a user charge system, management
must determine: 1) who will be billed; 2) what factors
billing will be based upon; and 3) howthe billing will
be performed.
Determine Who Shall Be Billed for Service
Wastewater utility managers must be able to identify
a//users so they can be billed in accordance with user
charge regulations. This entails identifying who pre-
sently receives, but is not being billed for, wastewater
treatment services. Tax-exempt, not-for-profit organi-
zations, etc. will probably be billed for the first time.
Depending upon a wastewater utility's ability to deter-
mine which users are currently being billed for treat-
ment services, managers may have to devote signifi-
cant effort: to identifying all users of the utility; to
characterize theirwastes; and to determine the pro-
cess loads contributed to the facility.
Once all users have been identified, the next step is the
establishment of user classes. User classes may vary
from a single class of users to multiple classes of users.
The classes should be developed on the basis of the
types and/or activities of the users. Generally speak-
ing, most utilities have a minimum of four user class-
es: (1) residential, (2) commercial, (3) industrial, and
(4) governmental/institutional. Each utility should
carefully review its own customer base to determine
the appropriate classifications.
Determine What The Billing Shall Be Based Upon
One of four methods can be used to establish propor-
tionate user charge rates. Presented below, in order
of simplicity, is a description of each method.
Equivalent Dwelling Unit Rate-This method is typi-
cally used when metering is not available and the vol-
ume and strength of all users' discharges are relatively
equal. This approach is usually employed by com-
munities of 3,000 population or less. A uniform rate is
assessed on all users, based on the discharge volume
and strength of the predominant user class, i.e., gen-
erally residential. Increments of the rate are assessed
on large commercial and industrial users based upon
number of employees, fixture units, or some other ap-
propriate factor that equates the flow and strength
from non-residential users to that of residential users.
Volume-This method is used when unit processes
are primarily dependent on volume (flow) and when
the discharge strength of all users is substantially
equal and approximates the strength of domestic dis-
charge. It would be most appropriate where the users
of a wastewater utility are primarily residential and
there are no industrial users whose discharge strength
significantly exceeds that of domestic sanitary sew-
age. Individual wastewater flows must be measured
or may be based on metered water usage.
Surcharge-This method normally would be appro-
priate where some users have high strength
discharges while a majority of users have discharges
equivalent in strength to normal domestic sanitary
sewage. The surcharge model is based on two
charges. The basic charge involves establishing a
volume rate which is applied to the discharge volumes
of all users. The second charge, called a surcharge,
should be determined and charged to those users
whose discharge strength exceeds that of normal
domestic sanitary sewage. The surcharge requires a
calculation of a rate for each strength-related billing
parameter.
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Quality/Quantity - This method requires
determining unit costs for volume and strength (i.e.,
Suspended Solids and Biochemical Oxygen Demand
and/or other appropriate parameters) and application
of these unit costs to the quantity and quality of
discharge from each user (user class) to determine
user fees. The quality/quantity rate structure would be
suitable for a facility (utility) where there are a sizeable
number of users with different wastewater
characteristics in terms of the type and concentration
of the discharge. Discharges must be periodically
monitored and analyzed to determine strength
characteristics.
The quality/quantity method should not be used when
there are less than normal strength dischargers. Since
weak strength wastes are more expensive to treat than
normal domestic sewage (because the plant is
designed to function within a specific range of
concentrations), charging weak strength users rates
based on normal domestic strength sanitary sewage
will result in a shortfall.
Determing the appropriate rate-setting model
represents a key step which must be accomplished in
the planning stage of the user charge development
process. Management should be aware that the
volume based model is often appropriate forfacilities
such as lagoons or in situations where all users
contribute discharges of approximately equivalent
strengths. A volume based model will generally not
be adequate when the facilities serve: (1) users (or
user classes) who contribute discharges of
significantly higher strength than normal domestic
sanitary sewage, or (2) users whose discharges
contain additional pollutants such as chromium, zinc,
cadmium, lead, oil or grease, etc.
When selecting the proper rate-setting model,
management should also consider the anticipated
strength, volume and flow rate characteristics of
future users. Although a volume based model may be
adequate for current users, developing rates at the
outset using the surcharge or quality/quantity models
may facilitate management's ability to maintain
proportionality forfutu re users without revising their
rate-setting methodology.
Regardless of which rate-setting model is selected,
the utility should incorporate the concept of a
minimum charge as a means of recovering certain
fixed costs that continue to occur whether the utility
operates or not. These include certain kinds of
insurance, payments due under certain contracts, and,
in some cases, all or a certain portion of the
administrative overhead. These costs must be
recovered. The mechanism used for recovery is the
minimum charge. The charge is based upon a
pre-determined minimum flow and strength loading;
and, unless usage exceeds these parameters, the user
pays the minimum charge.
Determine How The Billing Shall Be Performed
Billing for O,M&R costs may be achieved through the
actual use or ad valorem tax methods:
Actual Use - A system of charges whereby 0,M&R
costs are apportioned to the users (or user classes)
according to their actual use (measured flow and/or
strength parameters) of the wastewater utility. This
method involves generation of separate invoices to
directly assess each user for services received.
Ad Valorem Taxes - A system of charges whereby
0,M&R costs are allocated to users based upon tax
assessed values of the property. Since property values
are the basis of the billing, no relationship is estab-
lished between usage and cost. Other negative factors
concerning the ad valorem method are that it does
not promote water conservation and, because it is
based on property values, the thrifty water user actu-
ally subsidizes the extravagant user. For these
reasons, the ad valorem method is not widely used-
nor recommended-as a basis for billing. If federal con-
struction grant funds are involved, please refer to the
Chapter entitled: "User Charge Regulatory Require-
ments" for a discussion of the restrictions on the use
of an ad valorem system.
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DEVELOPING A USER CHARGE ORDINANCE
In most cases a user charge ordinance will have to be
developed and approved by local government
officials before a user charge system can be
implemented. Each ordinance will have to address
specific issues unique to a locality and be considered
through the local political process.
When wastewater utilities, serving more than one
municipality, are consolidated into a regional system
the "combined" revenue program must cover all
wastewater treatment services that are provided by
the regional system. Each participating agency must
adopt its own user charge system rate ordinance
which will generate a proportionate share of the
"combined" revenue of the regional system.
A well constructed ordinance will: explain why user
charges are collected; give complete definitions of
terminology; detail how user charge revenues are
utilized; explain the rate structure including the
criteria on which billings are based, actual rates and
how often users are billed; specify penalties for late
payments and non-payment; define the user's
responsibilities for reporting their wastewater
characteristics; outline appeal procedures for users
who question their rates; and define the
municipality's responsibilities for informing users
about rate changes. Also, the structure of the
ordinance should be such that rates and charges,
which are subject to annual revision, can be easily
changed without affecting the other contents of the
ordinance.
A model ordinance (Appendix III) and methodology
for developing rates (Appendix III A) are presented in
this manual to serve as a guide for developing an
appropriate user charge ordinance. Since each local
ordinance must be tailored to reflect the unique
conditions of the treatment system it will support, the
make-up of the ordinance will most likely vary from
the model in this manual.
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OVERALL REVENUE STRATEGY FOR
TOTAL OPERATING COST RECOVERY
User Charges represent only one element in a total
revenue strategy. The overall revenue strategy should
be capable of recovering all of the wastewater utility's
essential operating costs. The chapter on rate-setting
methodology outlined the concepts for developing a
proportionate user charge system for recovering the
0,M&R costs associated with the levels of service
provided. There are numerous approaches to
offsetting costs (other than O,M&R costs) which will
allow management to generate sufficient revenues to
support self-sustaining operations, while remaining
responsive to the economic and related concerns of
the communities they serve. While it would not be
practical to address all of the methods which
management might use to recover their total annual
revenue requirements, this section outlines
approaches for determining annual revenue
requirements and methods for generating sufficient
revenues to meet the annual revenue requirements.
Approaches To Determining Annual Revenue
Requirements
Depending on State regulations, a wastewater
utility's revenue requirements may be determined on
either the "cash basis" or the "rate-return basis." In
this context, the term "cash basis" is used to describe
a methodology for determining annual revenue
requirements and does not relate to the accounting
method. The cash basis method of revenue
requirement determination is generally used by
municipally-owned utilities not subject to rate
regulations by a State public utilities commission or
its equivalent. Wastewater utilities which are subject
to such rate regulations will generally be required to
use the "rate-return basis" for determining their
revenue requirements.
Determining revenues on the cash basis generally has
the advantage of providing for cash needs on a more
realistic basis. Publicly owned wastewater treatment
utilitiesare generally financed by issuing bonds,and
the associated debt service costs must be met from
annual revenues. Therefore, the cash basis method.
which includes debt service costs as opposed to
depreciation as a revenue requirement, is typically
more attuned to the needs of publicly owned
wastewater utilities. In addition, the goal of a publicly
owned wastewater utility is to recover its costs, not
to make a profit. Revenues determined on the cash
basis would include 0,M&R expenses, capital outlays
for major rehabilitations, expansions or upgrades,
and debt service requirements. Depending upon the
specific needs of individual public wastewater utilities
there are other optional items, such as the establish-
ment of various reserve funds, which may be included.
The "rate-return basis" method is premised on the
determination of revenue levels that provide a
given rate of return on a defined investment. This
method requires the determination of a revenue level
which is sufficient to cover annual operating
requirements, depreciation, and provide the desired
rate of return.
Regardless of which basis is used, the key concepts
which management should keep in mind include:
Costs required to achieve and maintain
compliance with discharge permits, and to
protect the wastewater utility's future
financial viability, must be included in the
annual revenue requirements;
Local needs, resources and constraints
should be given careful consideration when
determining other costs included in the
annual revenue requirements;
Financing strategies will impact the
revenue requirements for any given year
and should be carefully analyzed in terms
of their short and long term advantages and
disadvantages.
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Methods Of Generating Sufficient Revenues To Meet
The Annual Revenue Requirements
The type of rate structure used to recover 0,M&R costs
should be consistent with the wastewater utility's cost
of service characteristics and local goals and
objectives. For recovering costs other than
0,M&R, management generally has considerable
flexibility in selecting cost recovery methods which
best suit their unique circumstances. Three basic
types of revenue generation (or cost recovery)
methods which are typically used to recover "other
costs" are: special assessments; secondary revenue
offsets; and other service charges.
Special assessments may be used to recover capital
costs for proposed wastewater treatment facilities
(including collection systems) which will benefit
property owners within a carefully defined area or will
serve a unique propose. A special assessment amount
is assessed against and collected from each property
according to benefit. Property owners are generally
given the option of paying the entire assessment
initially or paying it in installments at a specific interest
rate. Examples of costs which might be recovered
through special assessments would include: the costs
to install sewer connector lines for a new development
(benefits specific users); and the costs of establishing
dedicated funds for future development or
contingencies (serves a unique purpose).
Where carefully defined benefits can be de-
monstrated, assessment bonds may be used to
provide financing. Although this type of financing has
not been used extensively in the past, management
may want to consider this financing vehicle and
should be aware that it may be used more frequently
as wastewater utilities and other public agencies look
for new ways to raise capital.
Secondary revenue offsets are generated by a
wastewater utility from activities other than the
provision of wastewater treatment services.
Secondary revenues would include: interest income;
fines and penalties; indirect cost reimbursement
proceeds; equipment sales or disposal; sales of
excess capacity and by-products such as sludge,
processed wastewater, excess oxygen or power
generation capacity, and other types of credits.
Recognizing that revenues such as those just
described provide a significant opportunity to reduce
the economic impact of rising treatment costs,
managers should make certain that efforts are made
to maximize these revenues.
Other service charges may be used to recover the
remaining non-0,M&R costs for which the user charge
rate structure is not appropriate. Such costs might
include: late payment penalties; septage treatment
costs; connection costs (i.e. turn on/turn off); and
other costs of general management and administra-
tive activities not directly associated with 0,M&R.
In selecting the individual type of service charge to be
used (i. e., a general service charge to all users or a
specific service charge for services which benefit only
specific users) management should consider the
nature of the costs to be recovered and any unique
local considerations which may exist.
10
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USER CHARGE REGULATORY REQUIREMENTS
This chapter is intended to assist the reader in
understanding the user charge requirements as a
starting pointfortimely development and approval of
user charge systems. To accomplish this objective,
the chapter is organized into the following sections:
—Impacts of Public Law 92-500 (Federal
Water Pollution Control Act Amendments
of 1972) and Public Law 95-217 (Clean
Water Act of 1977)
—Key User Charge Compliance Require-
ments
—Penalties of Noncompliance
Impacts of Public Laws 92-500 and 95-217
Section 201 of the Federal Water Pollution Control Act
Amendments of 1972, Public Law 92-500, provided the
authority by which certain municipalities within each
state could obtain Federal grant funding for the
construction of sewage collection, treatment, and
disposal facilities. As a stipulation to receiving these
Federal grants, Section 204 (b) of this Act requires that
each grantee develop an approved system of user
charges whch, among other requirements, must
accomplish the following:
1. Ensure that recipients of wastewater
treatment services pay their proportionate
share of 0,M&R costs based on the
quantity and quality of their discharges.
From a regulatory perspective these costs
are defined as follows:
Definition of O,M&R Costs
Operation and Maintenance - Expendi-
tures incurred during the useful life of the
treatment works for materials, labor,
utilities and other items which are
necessary for managing and maintaining
the facility in order to achieve the
capacity and performance for which it
was designed and constructed. The term
"operation and maintenance," when
used in the regulations, includes
replacement as defined below.
Replacement-Expenditures incurred for
obtaining and installing equipment,
accessories, or appurtenances during the
useful life of the treatment works
necessary to maintain the capacity and
performance for which the facility was
designed and constructed. This
definition of replacement does not
include expenditures for major
rehabilitation or reconstruction upon
expiration of the useful life of the
treatment works.
2. Generate sufficient revenues to provide
fortheproperoperation, maintenance and
replacement of the treatment works.
3. Ensure that municipalities receiving
wastewater treatment service adopt the
user charge system and pass through
proportionate charges to the end user. The
user charge systems adopted by
individual participating municipalities
may differ from that of the grantee as long
as the charges to the end users are
proportionate and the systems comply
with the user charge regulations.
11
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Public Law 95-217, adopted in 1977, amended Public
Law 92-500 in several ways. The major changes
applicable to the development of user charge systems
are summarized below:
1. Ad valorem taxes may be used to collect
all or part of the user charges.
Municipalities electing to use this method
must ensure thatthe portion of ad valorem
taxes related to wastewater treatment
(O.M&R costs) are separately identified to
the taxpayer each year; the budgeting and
accounting procedures mustensurethata
specified portion of the tax funds will be
used forthe payment of 0,M&R costs; and
industrial users must be billed on the basis
of actual usage. Additionally, this tax
structure must have been in effect on or
before December 27,1977, and dedicated
forthe purpose of wastewatertreatment—
specifically O,M&R,—if it is to be the basis
of the user charge system.
2. Grantees must recover the pretreatment
program costs through the user charge
system or from some other identified
source of funds as well as placing
incremental costs resulting from toxic
discharges and contaminating or
inhibiting sludge disposal on the user
responsible for such discharges.
Key User Charge Requirements
Public laws 92-500 and 92-217 require the EPA to
develop, as part of the Construction Grants Program,
specified regulations regarding the implementation of
user charge systems. In response to this legislative
requirement EPA promulgated Title 40 of the Code of
Federal Regulations (CFR).
There are several parts of the code that have an effect
on the preparation and implementation of user charge
systems: Part 25 Public Participation in the Program
under the Clean Water Act; and Part 35 Subpart I Grant
for Construction of Treatment Works.
For a thorough understanding of the user charge
requirements, managers are urged to obtain a copy
of Title 40 of the Code of Federal Regulations.
The following two exhibits1 summarize the key
user charge requirements and their respective
regulatory citations.
1The regulatory citations for Part 35 refer to the interim final (May 12,1982) and final (February 17,1984)
Construction Grants Regulations.
12
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KEY USER CHARGE REGULATORY REQUIREMENTS AS A
CONDITION OF RECEIVING A CONSTRUCTION GRANT
REGULATORY REQUIREMENTS
1. Prepare the framework for approval of a user
a user charge system by:
—Insuring adequate public participation
—Including a cost-effective analysis of the annual
capital and O,M&R costs of the various treat-
ment techniques techniques considered in the
facilities plan
—Including the cost impacts on system users
of the technology selected
—Demonstrating the legal, institutional,
managerial, and financial capability to ensure
adequate O,M&R
—Developing a plan of operation that addresses
the user charge system
—Executing the proper intermunicipal service
agreements, when necessary
2. Develop User Charge System which provides
for the following:
—Distributes O,M&R costs for wastewater
treatment to users (or user classes in
proportion to the total loading of each
user (or user class)
—Generates sufficient revenue to offset
O,M&R costs
—Establishes user classes as required
—Distributes Infiltration/Inflow costs
among all users
—Annual notification of users
—Establishes financial management system
to account for revenues and expenditures
—Ensures that toxic dischargers pay for
the incremental costs of treatment and
sludge disposal
—Ensures that user charge system takes
precedence over agreements or contracts
between the grantee and users
REGULATORY CITATION
40CFRPART:
25
35.2030 (b) (3) (vii)
35.2030 (b) (7) (iii)*
35.2104 (b)
35.2106
35.2107
35.2140
Section 204 (b)(1) (A)
of the Act
35.2140 (a) (b)
35.2140 (a) (b)
35.2140 (e)
35.2140 (c)
35.2140 (d)
Section 301 of the Act
35.2140 (g)**
'Changed to 35.2030 (b) (8) (iv) in the Final Construction Grants Regulations published February 17, 1984
"Changed to 35.2140 (h) in the Final Construction Grants Regulations published February 17, 1984
13
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3. Secure user charge system approval from EPA
or delegated state
—Actual use 35.2140 (a)
—Ad valorem taxes. This tax structure 35.2140 (b)
must have been in effect on or before
Dec. 27,1977 if it is to be the base
of a user charge system
4. Ensure that municipalities receiving wastewater 35.2140 (f)***
treatment services approve the user charge
system
5. Develop user charge ordinance 35.2140 (f)
6. Secure user charge system approval 35.2122
***
KEY USER CHARGE REGULATORY REQUIREMENTS
AFTER CONSTRUCTION GRANT IS AWARDED
REGULATORY REQUIREMENTS REGULATORY CITATION
40CFRPART:
1. Ensure that municipalities receiving 35.2140 (f)***
wastewater treatment services adopt
a user charge system and incorporate
it in municipal legislative enactments
or other appropriate authority.
2. Ensure that user charge system is 35.2208
implemented when wastewater treatment
facility becomes operational.
3. Notify users annually regarding the following:
—user charge rates 35.2140 (c)
—portion of ad valorem taxes related to 35.2140 (c)
wastewater treatment services.
Penalties of Noncompliance
The Construction Grants Program regulations are very specific as to when in the grant process the grantee is to
have a user charge system developed and approved. The grantee should be aware of the general noncompliance
provisions contained in 40 CFR and 30.900, General Regulations for Programs, which include: termination/annulment
of the grant; disallowance of project costs; withholding of grant funds; suspension of project work; and institution
of other actions.
***Changed to 35.2140 (g) in the Final Construction Grants Regulations published February 17, 1984
14
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APPENDIX I
TYPICAL OPERATING BUDGET LINE ITEMS
Salaries and Wages:
Full-time
Part time
Per diem
Indirect Salary and Wage Costs:
F.I.C.A.
Health Insurance
Retirement
Workmen's Compensation
Unemployment Insurance
Other Costs (vacations, sick leave, etc.
Contractual Services
Legal
Engineering
Financial (Audit)
Insurance
Printing
Other
Utilities
Power—electrical fuel requirements for treat-
ment works processing and plumbing
Power—electrical and fuel requirements for
buildings and administrative offices
Telephone
Gas
Water
Other
Equipment Replacement
Tools over $100.00
Laboratory equipment
Motor vehicles
Mowing equipment
Office equipment
Pumps with a value over $100.00
Motors with a value over $100.00
Other
Materials and Supplies
Chemicals—floculation
Chemicals—disinfection
Chemicals—other
Motor vehicle fuel and lubricants
Laboratory supplies
Tools under $100.00
Office supplies
Cleaning supplies
Note: These line items would apply, as appropriate, to treatment operations, sewer system maintenance,
billing, and other administrative functions.
15
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APPENDIX II
SAMPLER USER CHARGE RATE CALCULATIONS
FOR O,M&R COSTS
KEY ASSUMPTIONS
The assumptions included in this section are representative of a 5-10 mgd activated sludge plant which
provides secondary wastewater treatment to its users. Presented below are six tables outlining the key
assumptions which have been developed for purposes of illustrating the User Charge rate calculations provided
in subsequent pages. The tables are:
Table 1: Identifies the total 0,M&R costs of the wastewater treatment
plant and allocates those costs by volume, Biochemical
Oxygen Demand, and Suspended Solids.
Table 2: Identified selected annual operating statistics needed to
calculate excess BOD and SS.
Table 3: Establishes Numberof Equivalent Dwelling Units where
measured flow statistics are not available.
Table4: Calculation of Normal Domestic Sanitary Sewage Loadings.
TableS: Excess Amount of BOD and SS.
Table 6: Percentage of Normal Loadings to Actual Loadings.
Tables 1 and 2 are used in all the sample calculations. Table 3 is applicable to The Volume Method using
Equivalent Dwelling Units. Tables 4,5, and 6 are used to develop The Surcharge Method.
The following abbreviations are used in this appendix:
BOD -Biochemical oxygen demand
mg -Milliongallons
mgd -Milliongallonsperday
mg/L -Milligrams per liter
0,M&R -Operation, maintenance and replacement
costs
SS -Suspended solids
16
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TABLE 1 ALLOCATION OF TOTAL ANNUAL O,M&R COSTS BY UNITS PROCESS
Unit Process
Collection system
Grit and screen
Primary clanfier
Aeration and
Secondary clanfier
Chlorination
Solids disposal
system
Plant Water
Supply
General plant
services
Administration
Reserve equipment
replacement
Subtotal
Allocation of
general costs*
Allocation of
equipment
replacement
reserves"
Total O.M&R costs
'The general costs
O.M&R costs
Volume BOD
Total Annual
Costs Percent Amount Percent Amount
$ 239,000 100% $239,000 — —
26,000 — — — —
55,000 80 44,000 — —
316,000 — — 100% $316,000
17,000 100 17,000 — —
390,000 — — 50 195,000
17,000 100 17,000 — —
188,000
219,000
180,000
$1,647,000 $317,000 $511,000
121,700 196,200
53,800 86,800
$1,647,000 $492,500 $794,000
(General Plant Services, Administration) have been allocated to the unit processess in the
SS
Percent Amount
100% $ 26,000
20 1 1 ,000
— —
— —
50 195,000
— —
$232,000
89,000
39,500
$360,500
same proportion as were
"Reserves for equipment replacement have been allocated on the basis of prior year's cost experience.
TABLE 2 SELECTED ANNUAL OPERATING STATISTICS (Based on Plant Records)
Volume
BOD
SS
2,993 mg
7,600,000 Ibs
8,000,000 Ibs
TABLE 3 EQUIVALENT DWELLING UNITS (EDU's)
Single family residence
Apartments (1-2 bedrooms)
Apartments (3 or more bedrooms)
Retail stores
Taverns (15 chairs or seats)
Total EDUs
EDUs/umt
1.00
75
1.00
25
1.00
Units Served
ByPOTW
20,000
3,600
6,900
980
100
Total EDUs
20,000
2,700
6,900
245
100
29,945
17
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TABLE 4 NORMAL DOMESTIC SANITARY SEWAGE LOADINGS (Based on Sampling Results of Residential Users)
Influent Concentration (mg/L)
Conversion factor (wgt. -1 gallon of water)
Influent Concentration in Ibs/mg
Annual Volume - mg (table 2)
Normal Domestic Sanitary Sewage Loadings
BOD
275
X 8.34 Ibs
2,294
X 2,993
6,866,000 Ibs
SS
275
X 8.34 Ibs
2,994
X 2,993
6,866,000 Ibs
TABLE 5 EXCESS AMOUNT OF BOD AND SS
Annual Usage (Table 2)
Normal Loadings (Table 3)
Excess
BOD
7,600,000lbs
6,866,000 Ibs
734,000 Ibs
SS
8,000,000 Ibs
6,866,000 Ibs
1,1 34,000 Ibs
TABLE 6 PERCENTAGE OF NORMAL LOADINGS (Table 4) to ACTUAL LOADINGS (Table 2)
BOD
6,866,000 H- 7,600,000 = 90%
SS
6,866,000 -r 8,000,000 = 86%
FORMULA DEFINITIONS
Ba = Totalannual poundsof BOD
Bb = Annual O.M&R surcharge for excess BOD
Bl = Excess pounds of BOD contributed annually by all users
Bp = Percentageof Normal Domestic BOD to Actual (TableS)
Bt = Total annual 0,M&R unit processing costsfor BOD
Ca = Annual user charge rate
Cd = Annual user charge rate for normal domestic sanitary sewage
Ce = Annual usercharge rate perequivalent dwelling unit
Ct = Total annual 0,M&R costs
Cv = Total annual 0,M&R unit processing costs for volume
Et = Total numberof Equivalentdwelling units
Ob = Usercharge rate by unit process for BOD
Os = Usercharge rate by unit process for SS
Ov = Usercharge rate by unit processforvolume
Sa = Totalannual poundsof SS
Sb = Annual 0,M&R surcharge for excess SS
SI = Excess pounds of SS contributed annually by all users
Sp = Percentageof Normal Domestic SS to Actual (Table 6)
St = Total annual 0,M&R unit processing costsforSS
Vt = Totalannual volume
18
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VOLUME METHOD OF CALCULATING USER CHARGES
1. Calculation of Volume Rate based on measured flow:
Formula: Ca=Ct/Vt
Example: Ca = $1,647,000 Ca = $550/mg
2,993 mg
2. Calculation of Volume Rate using Equivalent Dwelling Units:
Formula: Ce = Ct/Et
Example: Ce = $1,647,000
29,945 (TableS)
Ce = $55/EDU
CALCULATIONS OF USER CHARGE RATES USING THE SURCHARGE METHOD
Determine user charge rate for treating normal domestic sanitary sewage.
Formula: Cd= Cv + (Bt) BD) + (St) (Sp)
Vt
Example: Cd= $492.500 + ($794.000) (90%) + ($360.500) (86%)
2,993 mg
Cd= $1.519.200
2,993 mg
Cd = $508 mg
Calculation of surcharge rates (added to volume rate):
Formula:
BOD
Bb = Bt/Ba
SS
Sb = St/Sa
Bb =
Bb
$794.000
7,600,000 Ibs
Sb= $360.000
8,000,000 Ibs
Sb= $.05/lb
Formula: Volume
Qv = Cv/vt
Example: Qv = $492.500
2,993 mg
Qv = $165/mg
QUALITY /QUAIMITY METHOD**
BOD
Qb = Bt/Ba
Ob= $794.000
7,600,000 Ibs
Qb = $.
§S
Qs = St/Sa
Qs = $360.500
8,000,000 Ibs
Qs = $.05/lb
**The quality/quantity method should not be used when there are less than normal strength discharges. Since weak
wastes are more expensive to than normal domestic sewage (because the plant is designed to function within a specific
range of concentrations), charging weak strength users rates based on normal domestic strength sanitary sewage will
result in a shortfall.
19
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APPENDIX III
MODEL USER CHARGE ORDINANCE
ORDINANCE NO
An ordinance establishing user charges in the city (town, sewage district, etc.) to provide funds needed to
pay for operation and maintenance expenses associated with the 's wastewater treatment
works.
WHEREAS, the.
_of.
_, has constructed wastewater treatment works; and
_'s intent to establish proportionate user charges that places the costs of
WHEREAS, it is the
abatement directly on the sources of pollution, conserves potable water, and maintains financial self-sufficiency,
and
WHEREAS, the
treatment works and charge the users of said treatment works accordingly:
_must pay the operation and maintenance expenses associated with the said
NOW, THEREFORE, BE IT ORDAINED BY THE
that the following user charges are established.
_, of the.
.of.
ARTICLE I
It is determined and declared to be necessary and
conducive to the protection of the public health,
safety, welfare and convenience of the.
to collect charges from all
users who contribute wastewater to the
treatment works. The proceeds of
such charges so derived will be used forthe purpose
of operating and maintaining the public wastewater
treatment works.
ARTICLE II
Unless the context specifically indicates otherwise,
the meaning of terms used in this ordinance shall be
as follows:
Section 1: "BOD" (denoting Biochemical Oxygen
Demand) shall mean the quantity of oxygen utilized
in the biochemical oxidation or organic matter under
standard laboratory procedure in five (5) days at 20°C,
expressed in milligrams per liter (mg/l).
Section 2: "Normal Domestic Wastewater" shall
mean wastewater that has a BOD concentration of not
more than mg/ and a suspended solids
concentration of not more than mg/1
(and any other pollutant, specify, concentration of not
more than mg/1).
Section 3: "Operation and Maintenance" shall mean
those functions that result in expenditutes during the
useful life of thetreatment works for materials, labor,
utilities and other items which are necessary for
managing and which such works were designed and
"constructed. The term "operation and maintenance"
includes replacement as defined in section 4. 20
Section 4: "Replacement" shall mean expenditures
for obtaining and installing equipment, accessories or
appurtenances which are necessary during the useful
life of the treatment works to maintain the capacity
and performance for which such works were designed
and constructed.
Section 5: "Residential User" shall mean any
contributor to the city's treatment works whose lot,
parcel or real estate, or building is used for domestic
dwelling purposes only.
Section 6: "Commercial User" shall mean all retail
stores, restaurants, office buildings, laundries, and
other private business and service establishments.
Section 7: "Industrial User" shall include any
non-governmental, non-residential user of publicly
owned treatment works which is identified in the
Standard Industrial Classification Manual, 1972, Office
of Management and Budget, as amended and
supplemented, under the following divisions;
Division A-Agriculture, Forestry, and Fishing; Division
B-Mining; Division D -Manufacturing; Division
E-Transportation, Communications, Electric, Gas and
Sanitary; and Division I -Services.
Section 8: "Institutional User" shall include social,
charitable, religions, and educational activities such as
schools, churches, hospitals, nursing homes, penal in-
stitutions and similar institutional users.
Section 9: "Governmental User" shall include legisla-
tive, judicial, administrative, and regulatory activities
of Federal, State and local governments.
Section 10: "Shall" is mandatory; "May" is permis-
sive.
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Section 11: "SS" (denoting Suspended Solids) shall
mean solids that either float on the surface of or are
in suspension in water, sewage, or other liquids and
which are removable by laboratory filtering.
Section 12: "Treatment Works" shall mean any de-
vices and systems for the storage, treatment, recycling
and reclamation of municipal sewage, domestic sew-
age or liquid industrial wastes. These include inter-
cepting sewers, outfall sewers, sewage collection sys-
tems, pumping, power, and other equipment and their
appurtenances; extensions improvement, remodel-
ing, additions and alterations thereof; elements essen-
tial to provide a reliable recycled supply such as
standby treatment units and clear well facilities; and
any works, including site acquisition of the land that
will be an integral part of the treatment process or is
used for ultimate disposal of residues resulting from
such treatment (including land for composting sludge,
temporary storage of such compost and land used for
the storage of treated wastewater in land treatment
systems before land application); or any other method
or system for preventing, abating, reducing, storing,
treating, separating or disposing of municipal waste
or industrial waste, including waste in combined
storm water and sanitary sewer systems.
Section 13: "Useful Life" shall mean the estimated
period during which a treatment works will be oper-
ated.
Section 14: "User Charge" shall mean that portion of
the total wastewater service charge which is levied in
a proportional and adequate mannerforthe cost of op-
eration, maintenance and replacement of the waste-
water treatment works.
Section 15: "Water Meter" shall mean a water volume
measuring and recording device, furnished and/or in-
stalled by a user and approved by the
ARTICLE III
Section 1: The revenues collected, as a result of the
user charges levied, shall be deposited in a separate
non-lapsing fund know asthe Operation, Maintenance
and Replacement Fund.
Section 2: Fiscal year-end balances in the operation,
maintenance, and replacement fund shall be used for
no other purposes than those designated. Monies
which have been transferred from other sources to
meet temporary shortages in the operation, mainte-
nance and replacement fund shall be returned to their
respective accounts upon appropriate adjustment of
the user charge rates for operation, maintenance and
replacement. The user charge rate(s) shall be adjusted
such that the transferred monies will be returned to
their respective accounts within six months of the fis-
cal year in which the monies were borrowed.
ARTICLE IV
(Rates and Charges Based on the Surcharge Method)
NOTE: Presented below is an example of a Rates and
Charges Section of a user charge ordinance.
The example presented is for illustrative pur-
poses only. Since each local ordinance must
be tailored to reflect unique local conditions.
The methodology used to construct this sec-
tion may well vary from the example pre-
sented.
Section 1: Each user shall pay for the services pro-
vided by the based on his use
of the treatment works as determined by water meter
readings (or other appropriate methods) acceptable to
the
Section 2: For residential, industrial, institutional and
commercial users, monthlyuser charges will be based
on actual water usage. If a residential, commercial, in-
stitutional, or industrial user has a consumptive use
of water, or, in some other manner, uses water which
is not discharged into the wastewater collection sys-
tem, the user charge for that contributor may be based
on readings of a wastewater meter(s) or separate
water meter(s) installed and maintained atthe user's
expense.
Section: 3 (Reference is made to Appendix III-A of this
ordinance).
Each user shall pay a user charge rate for operation
and maintenance including replacement of
$ per 1000 gallons of water.
Section 4: (Reference is made to Appendix
ordinance).
l-Aofthis
For those users whose wastewater has a greater
strength than normal domestic sewage, a surcharge
in addition to the normal user charge, will be collected.
The surcharge for operation and maintenance
including replacement is:
$-
$-
$.
_per pound BOD
^perpound SS
_per pound Other Pol-
lutant(s) (Specify)
21
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Section 5: Any user which discharges any toxic
pollutants (as defined in the Sewer Use Ordinance)
which cause an increase in the cost of managing the
effluent of the sludge from the 's
treatment works, or any user which discharges any
substance which singly or by interaction with other
substances causes identifiable increases in the cost of
operation, maintenance or replacement of the
treatment works, shall pay for such increased costs.
The charge to each such user shall be as determined
by the appropriate financial personnel and approved
by the
Section 6: The user charge rates established in this
article apply to all users of the 's
treatment works.
ARTICLE V
(Note: Late payment criteria and penalties are
outlined in Article V. The criteria and penalties shown
are for illustrative purposes only. The wastewater
utility may use whatever criteria and penalties it
deems appropriate.)
Section 1: All users shall be billed monthly. Billings
for any particular month shall be made within ten days
after the end of the month. Payments are due within
twenty days after the end of the month. Any payment
not received within thirty days after the end of the
month shall be delinquent.
Section 2: A late payment penalty of 7 percentoithe
user charge bill will be added to each delinquent bill
for each thirty daysor portion thereof of delinquency.
When any bill is more than ninety days in default,
water and/or sewer service to such premise shall be
discontinued until such bill is paid.
Section 3: When any bill (including interest and
penalty) remains unpaid for one year after the date
due, such bill shall be recorded in the land records of
by the treasurer and shall
constitute a lien on the property. If such lien (including
interest and penalty) remains unpaid for a period of
one year after date of recordation, such property shall
be subject to public sale by the treasurer.
forthat user. The.
.shall have the right
ARTICLE VI
All users contributing more than.
.gallons
per month and whose waste strength is greater than
_mg BOD/1 or mg SS/1
shall prepareandfilewiththe.
_a report
that shall include pertinent data relating to the
wastewater characteristics, including the methods of
sampling and measurment to obiain these data, and
these data shsll be used to calculate the user charge
to gain access to the waste stream and take its own
samples. Should the do so and should
the results be substantially different as determined by
from the data submitted by the user,
the user charge for that user shall be revised for the
next billing cycle/period.
ARTICLE VII
Section 1: Any userwhofeels his usercharge is unjust
and inequitable may make written application to the
requesting a review of his user charge.
Said written request shall, where necessary, showthe
actual or estimated average flow and/or strength of
his wastewater in comparison with the values upon
which the charge is based, including how the
measurements or estimates were made.
Section2: Reviewofthe requestshall be made bythe
and if substantiated, the user charges
for that user shall be recomputed based on the revised
flow and/or strength data and the new charges shall
be applicable to the next billing cycle/period.
ARTICLE VIII
Section 1: The
_will review the user
charges at least annually and revise the rates as
necessary to ensure that adequate revenues are
generated to pay the costs of operation and mainte-
nance including replacement and that the system
continuesto provideforthe proportional distribution
of operation and maintenance including replacement
costs among users and user classes.
Section 2: The will notify each user at
least annually ofthe rate being charged for operation,
maintenance including replacement ofthe treatment
works.
Passed bythe_
ARTICLE IX
ofthe
.of.
- this .
. day of.
ATTEST:
Clerk
Approved this
. day of.
_, 19-
ATTEST:
Clerk
22
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APPENDIX III—A TO USER CHARGE ORDINANCE
(Actual Use Rate Structure)
This appendix presents the methodology to be used in calculating user charge rates and surcharges and
illustrates the calculations followed in arriving at the first year's user charges and surcharges.
1. Expenses: Total Annual Expenses By Unit Process Are:
Unit Process
(SPECIFY)
Total Annual
Costs
Volume
Amount
BOD
Amount
SS
Amount
Other (Specify)
Amount
Allocation of
general costs
Allocation of
equipment
replacement
reserves
Total OM&R
costs
2. Loadings:
The total water consumption is estimated to be_
The BOD loading is estimated to be
The SS loading is estimated to be
(SPECIFY)
The _ loading is estimated to be
3. Unit Costs:
Total annual OM&R costs in $/1,000 gallons =.
Total annual OM&R $
.gal/year.
. pounds/year.
. pounds/year.
_ pounds/year.
Estimated annual water consumption/1,000 gallons.
Unit cost for BOD in $/pound = Annual $ to treat annual SS
Estimated annual BOD loading
Unit cost for SS in $/pound = Annual $ to treat annual SS
Estimated annual SS loading
Unit cost for other pollutants = Annual $ to treat other annual pollutants
Estimated annual other pollutant loading
The costs for total OM&R, BOD, SS and Other Pollutants are to be inserted in Article IV, Section 3 and 4 of the
ordinance.
23
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DEFINITIONS
The following terms shall be defined as:
Assessment: (1) The process of making the official
valuation of property for purposes of taxation. (2) The
valuation placed property as a result of this process.
(3) The charge against any particular parcel of land
within the boundaries of an irrigation, water, sewer,
drainage, or other district created for the purpose of
constructing improvements, or a share of the total
cost of such improvement, usually based on the
proportionate benefits received by such parcel as a
result of the improvement.
Assessments, special: A direct tax levy assessed
against property to pay for property improvements
that ordinarily are a direct benefit to the property itself.
Assets: Any real property and property rights that are
of value to and owned by the enterprise (utility).
Capital: Property of a permanent nature or intended
for long continued use or possession, employed in
or necessary for the conduct of an undertaking, and
representing the investment of money or its
equivalent. Examples include trucks, meters,
pumps, and motors.
Fixed: Permanent property, such as land, buildings,
sewer collection pipelines, tanks, rights and
benefits (tangible and intangible), permanently
employed in the rendering of a service or in the
production of a product.
Intangible: Any element of value applied to
permanent property of a non-physical nature such
as a franchise, trademark, patent, copyright, good
will, cost of organizing, developing, and establish-
ing; also, such items as going value, right of access,
water right, and power right.
Physical: See assets, tangible.
Tangible: Permanent property of a physical nature
such as lands, buildings, mineral deposits, wells,
reservoirs, plant equipment of all kinds, utensils,
furnishings, merchandise intended for immediate
use and permanent improvements.
Authority: A government of public agency created to
perform a single function or a restricted group of
related activities. Usuallysuch unitsare financed from
24
service charges, fees, and tolls, but in some instances
they also have taxing powers. An authority may be
completely independent of other governments for its
creation, its financing, or the exercise of certain
powers.
Betterment: An addition made to, or change made in,
a fixed or capital asset which is expected to prolong
its life, expand its capacity, or increase its efficiency
beyond initial design parameters and over and above
that arising from maintenance, and the cost of which
is therefore added to the book value of the asset. The
term is sometimes applied to sidewalks, sewers, and
highways, but it is preferable to designate these as
"improvements." See also improvements.
Biochemical oxygen demand (BOD): The quantity of
oxygen utilized in the biochemical oxidation of
organic matter in a specified time and at a specified
temperature, usually at 5 days and 20°C.
Capital Costs: Costs of major rehabilitation, better-
ments, expansion or upgrading required as facilities
reach the end of their useful life.
Capital Outlays: Expenditures which result in the
acquisition of or addition to fixed assets.
Collection System: The sewer lines and appurte-
nances used and useful in the collection and con-
veyance of wastewater. See also wastewater system.
Commercial User: All retail stores, restaurants, office
buildings, laundries, and other private business and
service establishments.
Enterprise Fund: A fund established to account for
operations (a) that are financed and operated in a
mannersimilarto private business enterprises where
the intent of the governing body is that the costs
(expenses, including depreciation) of providing goods
or services to the general public on a continuing basis
be financed or recovered primarily through user
charges; or (b) where the governing body has decided
that periodic determination of revenues earned,
expenses incurred, and/jor net income is appropriate
for capital maintenance, public policy, management
control, accountability, or other purposes. Examples
of Enterprise Funds are those for water, gas, and
electric utilities; swimming pools; airports; parking
garages; and transit systems.
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Governmental: Shall include legislative, judicial,
administrative, and regulatory activities of Federal,
State, and local governments.
Grantee: A municipality that has executed a Federal
grant agreement.
Improvements: Buildings, other structures, and other
attachments or annexations to land which are
intended to remain so attached or annexed, such as
sidewalks, trees, drives, tunnels, drains, and sewers.
Sidewalks, curbing, sewers, and highways are
sometimes referred to as "betterments," but the term
"improvements" is preferred.
Industrial User: Any nongovernmental, nonresidential
user of publicly owned treatment works which is
identified in the Standare Industrial Classification
Manual, 1972, Office of Management and Budget, as
amended and supplemented, under the following
divisions: Division A - Agriculture, Forestry, and
Fishing; Division B- Mining; Division D- Manufactur-
ing; Division E - Transportation, Communications,
Electric, Gas, and Sanitary; and Division I- Services.
Infiltration: Water other than wastewater that enters
a sewer system (including sewer service connections
and foundation drains) from the ground through such
means as defective pipes, pipe joints, connections, or
manholes. Infiltration does not include, and is
distinguished from, inflow.
Inflow: Water other than wastewater that enters a
sewer system (including sewer service connections)
from sources such as, but not limited to, roof leaders,
cellar drains, yard drains, area drains, drains from
springs and swampy areas, manhole covers, cross
connections between storm sewers and sanitary
sewers, catch gasins, cooling towers, storm waters,
surfasce runoff, street wash waters, or drainage.
Inflow does not include, and is distinguished from
infiltration.
Institutional: Shall include social, charitable, religious,
and educational activities such as schools, churches,
hospitals, nursing homes, penal institutions and
similar institutional users.
Operation and Maintenance: Those functions that
result in expenditures during the useful life of the
treatment works for materials, labor, utilities, and
other items which are necessary for managing and
maintaining the sewage works to achieve the capacity
and performanceforwhich such works weredesigned
and constructed.
25
Rate Base: The value of utility property used in
computing an authorized rate of return as authorized
by law or a regulatory commission.
Replacement: Expenditures for obtaining and
installing equipment, accessories, or appurtenances
which are necessary during the useful life of the
treatment works tomaintain the capacity and perfor-
mance for which such works were designed and
contrructed. The term "operation and maintenance"
(O&M) includes replacement.
Replacement Costs: The cost as of a certain date of a
property which can reder similar service (but which
need not be of the same structural form) as the
property to be replaced. Replacement is an incremen-
tal element of operating costs and is variable depend-
ing upon levelsof expendituresformaintenance.The
statutory definition of the term means expenditures
for obtaining and installing equipment, accessories or
appurtences during the useful life of the treatment
works necessary to maintain the capacity and
performance for which they were designed and
constructed. It is not a capital cost and does not
increase the book value of an asset.
Residential: Shall include all dwelling units such as
detached, semi-detached, row-houses, mobile homes
and multi-family dwellings.
Service Charge: A charge levied on a user of the
treatment works which includes a user charge, a
charge for capital reserve and debt service, other
charges for current services, or all of these.
Suspended solids: Solids that either float on the
surf ace of or a re in suspension in water, wastewater,
or other liquids and that are removable by a standard
laboratory filtering procedure.
User: A recipient of wastewater treatment services.
User Charge: A charge levied on users of a treatment
works for the cost of operation and maintenance,
including replacement.
Wastewater System: (wastewater facility) Acollective
term used to denote all the property involved in the
operation of a wastewater treatment utility. It includes
land, sewer lines and appurtenances, pumping
stations, treatment plants, and general property. See
also wastewater utility. Synonym: Sewer System.
Wastewater Utility: An enterprise, the principal
objective of which is the rendering of wastewater
service.
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U.S. 1Mv«ronflfu>«tpi fyptecuon Agency
Rev,on V, Library
230 South Dearborn Street
Chicago, Illinois 606Q4
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